Old vs New Tax Regime for FY 2026-27: The Break-Even Deduction for Your Salary
For most salaried people the new regime now wins outright. Here is the exact amount of deductions at which the old regime pays off, salary by salary, and how to check your own case in two minutes.
By Pradeep RawalNISM-certified (Series XV & VIII) · Updated · 8 min read
Key takeaways
- Budget 2026 left both regimes unchanged for FY 2026-27. The new regime is the default; the old regime must be chosen.
- Under the new regime a salaried person pays no tax up to ₹12.75 lakh of salary (₹12 lakh after the ₹75,000 standard deduction), thanks to the Section 87A rebate.
- The old regime only wins if your deductions (80C, 80D, HRA, home-loan interest, NPS) are large. At ₹15 lakh salary you need roughly ₹5.44 lakh of them; at ₹25 lakh about ₹8 lakh.
- Salaried employees can switch regimes every year. People with business income can switch back to the new regime only once.
- From 1 April 2026 the Income-tax Act, 2025 applies, and section numbers changed (80C became Section 123). The limits and the regime choice work the same way.
Every April, salaried India faces the same question from the payroll team: old regime or new? Since the 2025 Budget raised the rebate so that income up to ₹12 lakh is tax-free under the new regime, the answer has tilted sharply. Budget 2026 did not change the slabs, so the comparison for the tax year 2026-27 (financial year 2026-27, the first year under the new Income-tax Act, 2025) works exactly as it did last year.
The right way to decide is not a rule of thumb but a single number: how much in deductions you would need under the old regime to pay the same tax as under the new one. If your real deductions are above that figure, choose the old regime; if they are below it, the new regime is cheaper. This guide gives you that number for common salaries and shows how it is calculated.
The two regimes in one table each
The new regime has lower rates and more slabs but allows almost no deductions. The old regime has higher rates but lets you subtract investments, insurance premiums, rent and home-loan interest from your income first.
| Taxable income | Rate |
|---|---|
| Up to ₹4,00,000 | Nil |
| ₹4,00,001 – ₹8,00,000 | 5% |
| ₹8,00,001 – ₹12,00,000 | 10% |
| ₹12,00,001 – ₹16,00,000 | 15% |
| ₹16,00,001 – ₹20,00,000 | 20% |
| ₹20,00,001 – ₹24,00,000 | 25% |
| Above ₹24,00,000 | 30% |
| Taxable income (age below 60) | Rate |
|---|---|
| Up to ₹2,50,000 | Nil |
| ₹2,50,001 – ₹5,00,000 | 5% |
| ₹5,00,001 – ₹10,00,000 | 20% |
| Above ₹10,00,000 | 30% |
Three features matter as much as the slabs:
- Standard deduction. Salaried employees and pensioners deduct ₹75,000 in the new regime and ₹50,000 in the old.
- Rebate under Section 87A. In the new regime, if taxable income is ₹12 lakh or less, a rebate of up to ₹60,000 wipes out the tax. Just above ₹12 lakh, marginal relief ensures you never pay more tax than the income you earned above ₹12 lakh. In the old regime the rebate is ₹12,500, for taxable income up to ₹5 lakh.
- Deductions. The old regime allows Section 80C (₹1.5 lakh: EPF, PPF, ELSS, life insurance, principal on a home loan, children's tuition), 80D (health insurance, up to ₹25,000 for yourself and ₹50,000 for senior-citizen parents), 80CCD(1B) (an extra ₹50,000 into NPS), HRA exemption, and up to ₹2 lakh of interest on a self-occupied home loan. The new regime keeps only a few, mainly the employer's NPS contribution (up to 14% of salary).
From 1 April 2026 the Income-tax Act, 2025 replaced the 1961 Act. The "previous year" and "assessment year" have become a single "tax year", and sections were renumbered (Section 80C is now Section 123). The amounts, the slabs and the regime choice are unchanged. This article uses the familiar old section numbers because that is how most Form 16s and employer declarations still describe them.
The break-even deduction for each salary level
Here is the core result. For each gross salary, the table shows the tax you would pay under the new regime (with the ₹75,000 standard deduction) and the total deductions you would need under the old regime, on top of its ₹50,000 standard deduction, to pay the same amount. All figures include the 4% cess.
| Gross salary | Tax in new regime | Old regime breaks even at deductions of |
|---|---|---|
| ₹8,00,000 | ₹0 | ₹2,50,000 (both zero: old can only tie) |
| ₹10,00,000 | ₹0 | ₹4,50,000 (both zero: old can only tie) |
| ₹12,75,000 | ₹0 | ₹7,25,000 (both zero: old can only tie) |
| ₹15,00,000 | ₹97,500 | ₹5,44,000 |
| ₹18,00,000 | ₹1,50,800 | ₹6,42,000 |
| ₹20,00,000 | ₹1,92,400 | ₹7,08,000 |
| ₹25,00,000 | ₹3,19,800 | ₹8,00,000 |
| ₹30,00,000 | ₹4,75,800 | ₹8,00,000 |
| ₹40,00,000 | ₹7,87,800 | ₹8,00,000 |
| ₹50,00,000 | ₹10,99,800 | ₹8,00,000 |
Read it like this. At a ₹15 lakh salary the new regime costs ₹97,500. To pay the same under the old regime you would need about ₹5.44 lakh of deductions. Few people without a home loan and HRA get there: the full 80C limit (₹1.5 lakh), health insurance for yourself and your parents (₹75,000 at most for most families) and NPS (₹50,000) add up to only ₹2.75 lakh.
Up to ₹12.75 lakh of salary the new regime charges nothing, so the old regime can at best tie: it also reaches zero only if deductions bring taxable income down to ₹5 lakh. Above that, the break-even rises with salary, from about ₹5.44 lakh at ₹15 lakh to ₹7.08 lakh at ₹20 lakh, and then stops rising: for every salary above about ₹25 lakh it is exactly ₹8 lakh. The reason is that both regimes charge 30% at the top, so beyond that point the gap between them is a fixed amount, created by the new regime's gentler rates on the first ₹24 lakh.
A worked example at ₹18 lakh
Take Asha, 34, with a gross salary of ₹18,00,000. Under the new regime her taxable income is ₹17,25,000 and her tax, including cess, is ₹1,50,800.
Under the old regime, suppose she claims only the common deductions: ₹1.5 lakh under 80C (her EPF already covers most of it) and ₹25,000 of health insurance. Her taxable income becomes ₹15,75,000 and her tax ₹2,96,400, which is ₹1,45,600 more than the new regime.
Now suppose she has a home loan on the flat she lives in and claims every common deduction:
| Deduction | Amount |
|---|---|
| 80C (EPF + PPF/ELSS) | ₹1,50,000 |
| 80D (health insurance: self ₹25,000 + senior parents ₹50,000) | ₹75,000 |
| NPS 80CCD(1B) | ₹50,000 |
| Home-loan interest, self-occupied 24(b) | ₹2,00,000 |
| Total | ₹4,75,000 |
Her old-regime taxable income falls to ₹12,75,000 and her tax to ₹2,02,800, which is still ₹52,000 more than the new regime. This surprises many people: ₹4.75 lakh of deductions sounds large, but at her salary the break-even is about ₹6.42 lakh.
Change one fact. Instead of a home loan, Asha rents a flat in Pune for ₹40,000 a month. Her basic salary is half her gross (₹9,00,000) and her HRA is half her basic (₹4,50,000). The HRA exemption is the least of three amounts: the HRA she receives (₹4,50,000), rent minus 10% of basic (₹3,90,000) and 50% of basic (₹4,50,000). Here the binding limit is rent minus 10% of basic, so her exemption is ₹3,90,000.
With 80C, health insurance for herself and her parents, and NPS, her deductions total ₹6,65,000 and her old-regime tax is ₹1,43,520, which is ₹7,280 less than the new regime. Note the role of the rule change: until FY 2025-26, Pune was capped at 40% of basic, which would have limited her exemption to ₹3,60,000 and made the old regime cost ₹1,52,880, ₹2,080 more than the new regime.
How to decide in two minutes
- Add up deductions you would genuinely claim, not ones you would buy just to save tax. Use last year's Form 16 as a start: EPF and other 80C items, health insurance, NPS (own contribution), HRA exemption, and home-loan interest.
- Find your break-even in the table above, or enter your numbers in the tax regime calculator.
- Choose the old regime only if your deductions clear the break-even comfortably. A small saving is rarely worth locking money into products you would not otherwise buy.
A common mistake is buying an endowment policy or a ULIP in March only to reach the 80C limit. Under the new regime that premium saves no tax at all, and under the old regime the saving is at most 31.2% of the premium (30% plus cess), while the policy may lock you in for 15 years at a low return. Decide the regime first, then buy only what you need. See term insurance vs endowment and ULIPs.
Special cases that change the answer
Large HRA claims
If you live in a rented flat in a metro and receive HRA, the exemption can run into several lakh rupees a year and is often what makes the old regime worthwhile. It is calculated as the least of: actual HRA received, rent paid minus 10% of salary, and 50% of salary (40% outside the four metros, with Bengaluru, Hyderabad, Pune and Ahmedabad added to the metro list from FY 2026-27 under the new rules). Add it to your deductions when you compare.
Senior citizens
The old regime's nil band is higher for people aged 60 or more (₹3 lakh, and ₹5 lakh from age 80), and senior citizens get bigger 80D limits and an 80TTB deduction of ₹50,000 on bank and post-office interest. Pensioners with large interest income should run both calculations; the old regime wins more often for them than for younger salaried people.
Capital gains and other special-rate income
Equity capital gains are taxed at their own rates in both regimes: 20% for short-term and 12.5% for long-term gains above ₹1.25 lakh a year. The new regime's rebate does not apply to them. See our capital gains guide.
Business income
If you have business or professional income, the switching rule is stricter: once you leave the new regime you can return to it only once. Model a few years ahead before opting out.
The bottom line
For a salaried person without a home loan or a large HRA claim, the new regime is cheaper at almost every salary level, and it is simpler. The old regime still pays off for people with big, genuine deductions, typically a home loan plus HRA or high health-insurance premiums for parents. Do the comparison with your own numbers each year; it takes a few minutes and the answer can change when your loan, rent or salary changes.
Frequently asked questions
Which regime applies if I do nothing?
The new regime is the default. To use the old regime, a salaried employee tells the employer at the start of the year (for TDS) and can still choose either regime when filing the return. People with business or professional income must opt out of the new regime by filing the prescribed form before the due date of the return.
Can I switch every year?
If you have no business or professional income, yes: you can choose the regime afresh each year in your return. If you do have business income, you can opt out of the new regime and come back to it, but the option to return is available only once.
Is employer NPS contribution allowed in the new regime?
Yes. The employer's contribution to your NPS account (up to 14% of salary in the new regime) remains deductible. Your own contribution under Section 80CCD(1B), the extra ₹50,000, is only available in the old regime.
Does the ₹12 lakh rebate cover capital gains?
No. The rebate works on income taxed at normal slab rates. Equity capital gains taxed at special rates (20% short-term, 12.5% long-term above ₹1.25 lakh) do not get the rebate, so a person with ₹10 lakh salary and ₹3 lakh of short-term equity gains still pays tax on those gains.
Is home-loan interest deductible in the new regime?
Not for a self-occupied house. Interest on a let-out property can still be set against its rental income in the new regime, but the loss cannot be set off against salary.
Sources and further reading
About the author
Pradeep Rawal is an NISM-certified market professional (Series XV Research Analyst and Series VIII Equity Derivatives) with more than 15 years in personal finance and stock market education. He founded Financial Nirvana, wrote the book From Cubicles to Wealth Creation, teaches money and investing workshops, builds quantitative tools and backtesting systems, and writes about personal finance with the working shown.
This article is for education only and is not investment, tax or legal advice. Tax rules quoted are for the tax year 2026-27 (FY 2026-27) unless stated, and can change; check the latest position with the Income Tax Department or a qualified professional before acting. Examples use assumed returns that are not guaranteed.
